What happens when disruption comes to utility industry? Ask Tesla

Awhile back we introduced you to the concept of “cord shaving,” in which customers of cable television providers opt for lower-tier, less-expensive channel packages as a way of retaining the service while reducing the monthly bill.

It’s a close cousin to “cord cutting,” in which customers get rid of cable service entirely, often opting instead for Internet-based streaming video. Either way, consumers are shelling out less money for TV services, which means less revenue for the cable providers, which means a whole lot of financial havoc for the industry.

With that background in mind, let’s talk about another form of cord shaving and cutting, one with huge implications for the electric utility industry (and, since it’s in both businesses, Tacoma’s own municipal utility).

To do so, we need to join the recent fourth-quarter-earnings conference call for Tesla Motors, the maker of electric-powered cars (transcript from thestreet.com).

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An investment analyst asked Tesla executives for an update on stationary energy-storage products the company has been developing. “We’ve heard some utilities looking for (requests for proposal) for utility-scale products. Are you guys at a position where you can start bidding on those RFPs or entering those RFPs?”

Yes they are, answered Tesla Chief Executive Elon Musk. “We’re going to unveil some of the Tesla home battery or consumer battery (products) that will be for use in people’s houses or businesses, fairly soon. We have the design … and it should start going into production probably in about six months or so. We’re trying to figure out a date to have the product unveiling, but it’s probably in the next month or two. And it’s really great. I am really excited about it.”

“There’s a lot of interest and a lot of utilities are working in the space and we’re talking to almost all of them,” added JB Straubel, Tesla’s chief technology officer. “It’s (the) early stage of stuff and a lot of these projects are very far out since the procurement cycle for utilities is so long, but this is a business that’s certainly gaining an increasing amount of our attention.”

It’s getting a lot of attention from a lot of players, including some locals. UniEnergy Technologies in Mukilteo is building grid-scale batteries that come in 20-foot containers. Avista Utilities in Spokane and Snohomish Public Utility District have both ordered UniEnergy systems.

High-capacity, low-cost and compact battery technology is the Holy Grail, the Fountain of Youth and El Dorado (the city of gold, not the Cadillac) of the energy world. Everyone is sure it’s out there and untold riches and rewards await whoever masters the technology, which is why so much money is being thrown into the field. Think of what it would do to the electric-car segment to have lighter, smaller batteries with faster recharging times and greater range than what’s available today.

Utilities are keenly interested in batteries because they would make renewable energy a more financially and attractive generation option (beyond just being required by law to have some in the portfolio of sources). The sun doesn’t always shine and the wind doesn’t always blow, and even when they do they don’t do so consistently. Grid scale batteries provide backup and smoothing to an electric generation, transmission and distribution system reliant upon renewals. They also allow utilities to store some of the juice being produced at off-peak hours, thus allowing them to get more revenue-producing work out of their wind farms.

But few things in life are unalloyed blessings, and such is the case for utilities and battery technology. Home solar systems have been coming down in cost, to the point of making them (in combination with tax and utility-offered incentives) a viable proposition for residential customers.

And once you have one, what do you do with the juice that’s being generated when you don’t need it (which would be the case for many who aren’t at home during the day)? It could just go to waste. You could sell some of it to the local utility under a net-metering plan.

Or you could store it for you to use it when you get home from work and at night when the sun doesn’t shine.

In the latter two cases, the utility is getting less revenue from that customer, and that presents some interesting challenges. Some of that monthly bill goes to covering costs that the utility incurs to build, operate and maintain the system regardless of how much juice it’s shooting into your home. Less revenue per customer means less revenue to cover those costs.

This has already been an issue with increased conservation (and thus decreased power consumption). It’ll be even more of one as companies like Tesla popularize home energy storage systems and drive down their cost, and as consumers get more comfortable with relying on those systems to power their homes, all or in part, with electricity they’ve produced themselves.

Which, to reduce it to a bit of jargon, is cord cutting and cord shaving. It might be tempting to dismiss the prospect of cord cutting and shaving causing massive disruption to the electric utility industry as they have the cable-TV business as a bit overheated; cable, no matter how much you might like it, isn’t an essential service, and consumers will be reluctant to meddle with a something they need and that works.

But the interest of a company like Tesla is an indicator that many consumers will be more daring in adopting technology than they’re given credit for. When they do make the switch to less or no reliance on the local utility, it’s likely they won’t be passing on that message via another bit of technology once thought essential — the landline telephone.

Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at bill.virgin@yahoo.com.